No. of Recommendations: 9
"But there is a yawning and potentially fatal gap between those observations and assuming that the rate of growth will CONTINUE to be steady, which is what happens when you look at the current level of the long run trend line and think of it as a value metric."
The model does not assume that the rate of growth will be steady. It only assumes that if the value metric, in this case BV, increases, then price and IV will increase as well. From 1981 to 1999 BV grew 29%/yr, but since then BV has grown 10%/yr. Nevertheless, the share price, and I argue the IV as well, has continued to track BV almost perfectly. The model does not plot BV versus time, or stock price versus time. It plots stock price versus BV. It makes no assumption about the rate of growth of BV or IV.
